Lowest cost copper producer
Copper producers don’t have much control over copper pricing. The prices are decided by market dynamics. When copper prices start falling, high-cost producers become unprofitable much sooner than peers that are placed better on the cost curve. Low-cost producers are able to tide over economic cycles better.
Moreover, pressure builds on miners to close their high-cost mines when commodity prices fall. In this part, we’ll explore how Southern Copper’s (SCCO) unit production costs compare to other major copper producers.
Unit production costs vary across copper producers
Unit cash costs vary across copper producers, as you can see in the chart above. Note that these costs are after by-product credits. Freeport-McMoRan (FCX) had unit cash costs of $1.50 per pound in 2Q15 after all byproduct credits. Teck Resources (TCK) had similar cash costs at $1.49 per pound in 2Q15. Codelco, the world’s largest copper miner, had cash costs of $1.36 per pound in 1Q15.
Together, Freeport and Teck Resources form ~1.03% of the iShares North American Natural Resources ETF (IGE).
Southern Copper (SCCO), which is among the lowest-cost copper producers, had unit cash costs of $1.12 per pound in 2Q15. Southern Copper’s earnings haven’t fallen as much as its peers by virtue of being nimble on costs.
Why Southern Copper has less unit production costs
- Southern Copper’s copper mines are in Peru and Mexico where labor costs are less than the United States. In contrast, Freeport-McMoRan (FCX) has significant mining assets in the United States (SPY).
- Southern Copper has higher byproduct credits compared to some of its peer companies.
- Currently, all of Southern Copper’s major mines are open pit. As we’ve already seen, open pit mines generally have less unit production costs.
Southern Copper uses an SX-EW (solvent extraction and electrowinning) process for a significant portion of its production. We’ll discuss this in detail in the next part of this series.